This post originally appeared on the ChinaFAQs blog.

It is common knowledge that China burns a large amount of coal, with the fuel accounting for nearly 70% of China’s primary energy consumption in recent years. What is less commonly known is that China is also working on ways to reduce the impact of its coal use, including aggressively pursuing research and demonstration of carbon capture, utilization and storage (CCUS) technology.

CCUS is a process that requires a chain of different technologies to capture carbon dioxide (CO2) emissions from large sources, such as fossil fuel power plants and large industrial plants, and then store the captured carbon underground. In some cases, the captured carbon can be used to enhance production of oil and natural gas or to produce beverage-grade CO2, which is referred to as utilization.

China’s Policy Breakthrough on CCUS

In April, China’s main policy-making body, the National Development and Reform Commission (NDRC), adopted a new policy to promote the demonstration of integrated CCUS projects and pave the way for “large-scale application and commercialization.” The policy calls on local governments to take further steps on pilot projects along newly developed guidelines, which can improve research on capturing CO2 as a way of addressing climate change and creating economic benefits.

In the past, countries and companies have separated the research for storing or utilizing CO2 from the research for capturing CO2. One of the major breakthroughs of China’s new policy is that steps are being taken to assure that new research projects bring both of these actions together, capturing CO2 from fossil-fuel burning and injecting it into the ground.

Utilization of CO2 can enhance oil or gas recovery, leading to direct monetary benefits. Therefore, utilization technologies have frequently attracted more research money than capture technologies. However, research projects have traditionally found it cheaper to drill into the ground and bring up naturally occurring, underground CO2 rather than capture and use CO2 from the burning of fossil fuels. Many utilization and storage research projects have therefore taken out CO2 already in the ground and re-injected it, which yields no environmental benefit and does nothing to move forward carbon capture technologies. China’s new policy connects the environmental benefit with the potential for direct monetary gains, ensuring that demonstration of CCUS moves forward in an integrated fashion—building knowledge and experience on the entire CCS process.

Why Is China Interested in CCUS?

China is very vulnerable to the effects of climate change, and one of the main drivers in promoting large-scale CCUS demonstration is the desire to avoid these dangerous impacts. For example, China’s first national report on climate change found that yields of rice, maize, and wheat could fall by up to 37 percent by the second half of the 21st century in the face of unabated climate change. Other Chinese studies have found that 90 percent of China’s coast is at least “moderately vulnerable” to sea level rise, and a third of China’s coastline “highly vulnerable” or worse. About 42 percent of China’s population and 51 percent of the country’s GDP is in coastal zones, so sea level rise is significant worry.

There is still a difference of opinion on the future of CCUS in China, and some worry that deployment of CCUS would encourage China to continue to use large amounts of coal. However, this misses the fact that a major factor pushing China away from coal is local air pollution. CCUS can help limit the effect of fossil energy on climate, but it does not aid in improving local air quality. It is therefore unlikely that expanded CCUS would negatively impact China’s motivation to move towards cleaner energy sources.

Challenges to CCUS

While there has been significant progress in China’s CCUS research in recent years, a number of challenges remain. Most significantly, the cost of CCUS remains high due to increased capital and operating costs from the CCUS equipment and from the processes’ energy penalty. The energy penalty is derived from the fact that the equipment used to capture CO2 emissions and store them underground requires continuous inputs of energy. While you are getting fewer CO2 emissions for each unit of coal, you are also getting a reduced amount of usable energy, leading to a further increase in energy prices. However, the costs that will ultimately be imposed on fossil fuels for CCUS will likely be quite manageable. Previously, those operating fossil fueled power plants and industrial fossil energy sources also objected to the similar additional costs of sulfur and nitrogen emissions control technologies. However, after policies were put in place to mandate the use of such technologies, costs of the technologies fell dramatically.

The current problem with the CCUS cost issue is that it has become stuck with a chicken-and-egg problem. The only way to drive down the cost of CCUS is through large-scale pilot and demonstration projects, which would allow the testing of different technologies on commercial scales. However, many utilities have been reluctant to adopt CCUS without policy incentives because the price is still higher than they would like, and they are not able to pass that cost on to the consumer. China’s decision to start promoting large-scale, integrated CCUS projects has the potential to solve this problem. It could usher in significant decreases in CCUS costs through learning-by-doing and identifying cost-effective ways of operating.

U.S.-China Cooperation and the Road Ahead

Indeed, China is emerging as a leader in the CCUS space. This type of leadership can not only inform other CCUS practices and standards throughout the world, it can boost collaboration—particularly with the United States.

Currently, China has 11 large-scale integrated CCUS projects in the planning stages. On top of this, four large-scale integrated pilots are already operating or in the construction stages. Cooperation with the United States and other countries has been critical for establishing these CCUS projects in China. In 2009, the United States and China launched the Clean Energy Research Center (CERC), which included a group focusing on carbon capture and storage technologies. Work done in the CERC and other collaborations between U.S. and Chinese partners have been instrumental in moving CCUS technology forward.

Agreements between the U.S. and China as part of July’s Strategic and Economic Dialogue also focused heavily on CCUS, with the two countries calling for a “transition from research to commercial-scale demonstration” of CCUS and agreeing to “overcome previous barriers to CCUS deployment by implementing several integrated CCUS projects in both countries.”

China is also engaged in the development of national standards for CCUS, designed to protect the environment as demonstrations move forward. This is significant because proper environmental oversight is needed to ensure secure storage of CO2 underground, where groundwater resources and other ecosystem services are protected. In addition, China is in a leadership position in developing International Standards for CCUS. The country co-leads the International Standards Organizations’ technical committee writing CCUS Standards, ISO TC265. The goal of ISO TC265 is to develop international standards for the entire CCUS process, including capture, transport, and storage or enhanced oil recovery. The work being done as part of ISO TC265 builds on earlier efforts to develop best practice guidelines for CCUS by Tsinghua University and WRI.

CCUS still has a long way to go, particularly in making it cost-effective. But with coal continuing to play a significant role in the Chinese energy mix, it is encouraging that China is seeking to develop CCUS. Large-scale, integrated demonstrations of the technology are a critical next step. Fortunately, on this issue, China may be charting a way forward.